Donor-advised fund lawsuit pits advisor against sponsor

A lawsuit against a prominent Christian donor-advised funds organization is testing whether it or the original donor’s son is in control of charitable distributions from the tax-advantaged vehicle.

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In the case, filed earlier this year in the federal court in Colorado, Philip G. Peterson accused the Christian Community Foundation, which conducts business as a nonprofit philanthropic organization called WaterStone, of breach of contract, negligent misrepresentation and violating a state consumer protection law, among other claims. 

WaterStone is the sponsor and administrator of the Peterson Family Stewardship Fund, a donor-advised fund with $21 million in assets. Philip Peterson has been the sole advisor for the fund since the deaths of his father, real estate investor Gordon Peterson, and his father’s wife, Ruth. The organization “acknowledged and agreed” that the younger Peterson “became a donor advisor to the fund” in line with his father’s November 2017 designation, the lawsuit stated. In the past two years, though, Peterson said that WaterStone has cut off nearly all charitable distributions from the fund and stopped any communication with him as the successor advisor.

“WaterStone’s CEO [Ken Harrison] told Mr. Peterson never to contact WaterStone again,” the lawsuit said. “WaterStone has refused to provide Mr. Peterson with the governing documents or any accounting of the fund’s assets. WaterStone’s stated position is that it owes no duties to its fund advisors and may disregard them entirely. If correct, WaterStone may indefinitely retain millions in tax-advantaged charitable assets while ignoring the donor’s designated advisor and making no distributions to charity.”

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A large service provider

WaterStone “gives away about $5 million every week to support Kingdom impact,” according to Harrison’s bio. He’s a frequent guest on Christian and conservative talk shows and has previously served on the boards of Promise Keepers and the Fellowship of Christian Athletes. 

With a mission of “honoring God through the transformational power of giving, serving givers at the intersection of faith and finance and building the Kingdom by transforming assets into living water,” WaterStone’s services include donor-advised funds, trusts, annuities and other philanthropic services “structured to meet the specific donor’s needs and charitable vision,” according to its latest nonprofit disclosure. WaterStone’s board includes Ben Carson Jr., the co-founder of FVLCRUM Funds and son of former presidential candidate Ben Carson, and Demi-Leigh Tebow, a former Miss Universe and women’s wellness advocate who is the wife of onetime National Football League quarterback Tim Tebow. A page on the WaterStone website specifically asks, “Are you a financial advisor?” and invites advisors to “partner with WaterStone to offer your clients sophisticated, tax-efficient charitable giving strategies that align with their financial goals.” 

The organization has denied Peterson’s allegations.

“WaterStone has consistently carried out the articulated wishes of the donor since the donor-advised fund in question was established,” Allison Burke, a partner with the Taft Stettinius & Hollister law firm who is representing the organization in the case, said in an emailed statement. “The plaintiff in this case is not the donor. Because of the pending litigation, WaterStone declines to comment further on this matter.”

The case is drawing attention from advisors, whether due to the nature of the claims or to the continuing surge in popularity of donor-advised funds. DAF assets have nearly doubled over a five-year span to more than $326 billion at the end of 2024, according to the Donor Advised Fund Research Collaborative. 

The successor advisor’s wishes are coming into conflict with a sponsor’s potential loss of business from any transfers to another service provider or charitable distributions, noted Peggy Haslach, the founder of Mansfield, Massachusetts-based advisory practice Planning for Good. The case shows why it’s important for advisors and their clients to ensure they choose sponsors or other vendors that are aligned with their goals.

“I’m watching it to see what went wrong, and I’m coming in with the idea that the problem is not the gifting, the problem is the $21 million value of that account. … That’s a $21 million loss of assets,” Haslach said. “This is why you have to have the conversation with the client, the custodian and everyone involved with the donor-advised fund.”

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The advisor’s request

Gordon Peterson launched the fund through WaterStone in 2005 to provide donations toward evangelical causes and charities. Once Philip Peterson became an advisor to the fund in 2017 — and after Gordon’s 2019 death, that of Ruth in 2021 and another subsequent two years — WaterStone collaborated with him as the “contractual advisor to the fund and uniformly approved and administered his grant recommendations,” according to the lawsuit. But that changed in March 2024, when Peterson said that Harrison informed him in a verbally abusive, swear-laden Zoom call that the organization would be terminating its relationship with him. 

WaterStone “ignored the grant request and has never made the requested donation” of about $1 million that Peterson had asked to go to a missionary organization called Operation Mobilization around that time, the filing stated. That was the only occasion that WaterStone had ever rebuffed or failed to put in motion a requested distribution from the fund in that manner, and there were no donations at all from the vehicle in 2024. Last year, WaterStone permitted $400,000, which was “the only amount of the Fund that was not invested by WaterStone,” to be distributed to charities, according to the lawsuit. But Peterson received no response when he informed the organization that the fund still hadn’t distributed $4.5 million that was due to go out over the previous two years, he said.

“WaterStone’s bad faith conduct has interfered with the charitable purposes of the fund and its advisor’s right to have his recommendations accepted and considered in good faith in furtherance of the philanthropic purposes and objectives of the fund,” the lawsuit said. “With no distributions being made from the fund, the fund’s purpose of supporting charitable endeavors has been defeated.”

The lawsuit cited “unfounded negative feelings” toward Peterson among WaterStone executives, but it isn’t clear what prompted them. Peterson’s attorney didn’t respond to a request for comment. In an interview with CNBC about the case, the lawyer and his client said that Peterson had disagreed with WaterStone’s suggestion that the organization would distribute only from the fund’s investment income in the future while retaining its principal in perpetuity. During that call in March 2024, Peterson said he had told Harrison that he wanted to move the fund to a different sponsor.

“I made a promise to my father. I promised him that if I was the remaining person on the account that I would direct the funds as I knew that he would 100% approve,” Peterson, a 63-year-old resident of Mission Hills, Kansas, told the news outlet. “I want to be a man of my word.”

The Jan. 15 lawsuit’s claims against WaterStone include a breach of implied covenant of good faith and fair dealing and demands for a full accounting of the fund’s assets, as well as declaratory and injunctive relief for the plaintiff. The judge in the case has set a deadline by the middle of this month for the parties to schedule a conference session ahead of a potential trial.